SEC Charges Issuer and CEO With Fraud and Violation of Securities Industry Whistleblower Laws— Sought to Silence Complaints By Investors
On November 4th, 2019, the Securities and Exchange Commission (SEC) filed an amended complaint against Mykalai Kontilai, the Chief Executive Officer (CEO) of a company called Collectors Café. Notably, Collectors Café is also being charged as part of a $23 million securities fraud scheme.
Not only is Mr. Kontilai accused of committing securities fraud, but he is now also facing charges that he violated the industry’s whistleblower protection laws. In this article, our Miami investment fraud attorneys provide an overview of the allegations against this individual and his firm.
Securities Fraud Allegations: Material Misrepresentations to Investors
The SEC brought legal action in the United States District Court for the Southern District of New York. In its complaint, the agency alleges that Collectors Café—the entity owned and operated by Mykalai Kontilai—raised millions of dollars from outside investors. Altogether, the company reportedly took in more than $23 million from nearly 150 investors.
According to materials provided to investors, their funds would be used to help the company develop a website and television show, and expand the company’s business operations. However, the SEC contends that substantial portions of the investor money were simply siphoned off by Mr. Kontilai to pay his personal expenses and to fund his lavish lifestyle.
In total, federal regulators believe that this individual improperly diverted at least $6.1 million of investor money for his own personal use. The complaint states that Mr. Kontilai made material misrepresentations to investors, including stating that the money he took was to repay an old loan that he made to the firm—though this is a loan the SEC believes was never actually made, at least in the amount stated by Mr. Kontilai.
SEC Whistleblower Protection Violations: Agreements Prohibited Disclosures
Alarmingly, Mr. Kontilai is also accused of violating key securities industry whistleblower protection laws. Federal officials believe that the company and the CEO tried to resolve all investor complaints using agreements that explicitly barred investors from reporting possible securities law violations to any regulatory agency. In fact, the company even filed a lawsuit against two different investors who “breached” the agreements. In reality, these types of agreements are strictly illegal and are not enforceable.
Every investor has the legal right to report suspected misconduct. Companies and individuals who raise money by offering securities to investors cannot coerce investors into giving up their rights in this manner. Further, securities industry insiders, including employees, have the right to make protected and fully confidential disclosure to the enforcement agencies. SEC whistleblowers play an important role in stopping fraud and protecting investors.
Call Our Miami Securities Litigation Attorney Today
At Carlson & Associates, P.A., our Florida investment fraud lawyers fight hard to protect the rights of investors. We also represent securities industry whistleblowers who wish to confidential disclose information to state or federal regulators. To arrange a fully private initial consultation with an experienced securities law attorney, please call our Miami law office today.
Resources:
sec.gov/news/press-release/2019-227
sec.gov/litigation/complaints/2019/comp-pr2019-227.pdf